SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
| (Mark one) | ||
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended March 31, 2003 | ||
| OR | ||
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from _______________________ to _____________________.
Commission File Number 000-29215
LENDINGTREE, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 25-1795344 | |
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| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
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| 11115 Rushmore Drive | ||
| Charlotte, North Carolina | 28277 | |
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| (Address of principal executive offices) | (Zip code) | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act). Yes x No o.
As of April 30, 2003 there were 22,910,267 shares of Common Stock, $0.01 par value, outstanding. Additionally, there are 230,866 shares of treasury stock issued but not outstanding.
LendingTree, Inc.
Table of Contents
| Page | ||||
| Number | ||||
| Part I | Financial Information: | |||
| Item 1. | Consolidated Financial Statements (Unaudited) | |||
| Consolidated Balance Sheets — March 31, 2003 and December 31, 2002 | 3 | |||
| Consolidated Statements of Operations - Three months ended March 31, 2003 and March 31, 2002 | 4 | |||
| Consolidated Statements of Cash Flows - Three months ended March 31, 2003 and March 31, 2002 | 5 | |||
| Consolidated Statement of Changes in Shareholders’ Equity- March 31, 2003 and December 31, 2002 | 6 | |||
| Notes to Consolidated Financial Statements | 7 | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | ||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 30 | ||
| Item 4. | Controls and Procedures | 30 | ||
| Part II | Other Information: | |||
| Item 1. | Legal Proceedings | 31 | ||
| Item 2. | Changes in Securities and Use of Proceeds | 31 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 31 | ||
| Signature | 33 |
PRODUCTS MENTIONED IN THIS REPORT ARE USED FOR IDENTIFICATION PURPOSES ONLY AND MAY BE TRADE NAMES OR TRADEMARKS OF LENDINGTREE, INC. OR THIRD PARTIES.
2
PART I — Financial Information
LendingTree, Inc.
Consolidated Balance Sheets
| March 31, | December 31, | |||||||||||
| 2003 | 2002 | |||||||||||
| (unaudited) | ||||||||||||
| ($ in thousands, except per share data) | ||||||||||||
Assets |
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Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 20,645 | $ | 22,708 | ||||||||
Restricted cash |
6,232 | 4,479 | ||||||||||
Total cash and cash equivalents and restricted cash |
26,877 | 27,187 | ||||||||||
Accounts receivable, net of allowance for doubtful accounts |
21,998 | 16,892 | ||||||||||
Prepaid expenses and other current assets |
1,581 | 1,010 | ||||||||||
Total current assets |
50,456 | 45,089 | ||||||||||
Equipment, furniture and leasehold improvements, net |
3,240 | 1,717 | ||||||||||
Projects in process |
774 | 1,468 | ||||||||||
Software, net |
871 | 965 | ||||||||||
Intangible assets, net |
743 | 1,330 | ||||||||||
Other assets |
174 | 118 | ||||||||||
Total assets |
$ | 56,258 | $ | 50,687 | ||||||||
Liabilities and Shareholders’ Equity |
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Current liabilities: |
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Accounts payable |
$ | 7,133 | $ | 6,952 | ||||||||
Deferred revenue |
365 | 417 | ||||||||||
Accrued incentive and other compensation |
2,465 | 5,095 | ||||||||||
Accrued professional services and other fees |
2,395 | 284 | ||||||||||
Accrued consumer promotional costs |
987 | 1,324 | ||||||||||
Accrued other expenses |
1,123 | 1,422 | ||||||||||
Current portion capital lease obligations |
754 | 619 | ||||||||||
Total current liabilities |
15,222 | 16,113 | ||||||||||
Long-term deferred revenue and other non-current liabilities |
1,078 | 927 | ||||||||||
Capital lease obligations |
427 | 311 | ||||||||||
Commitments and contingencies
Mandatorily redeemable securities
Series A convertible preferred stock, $.01 par value, 8%
cumulative, 6,885,715 shares authorized, 5,996,676 shares
issued and outstanding at March 31, 2003 and December 31, 2002 |
21,861 | 21,691 | ||||||||||
Shareholders’ equity: |
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Common stock, $.01 par value, 100,000,000 shares authorized,
23,018,037 and 22,823,920 shares issued at March 31, 2003
and December 31, 2002, respectively |
230 | 228 | ||||||||||
Treasury stock (230,449 shares at March 31, 2003 and
237,673 shares at December 31, 2002, at cost) |
(1,472 | ) | (1,518 | ) | ||||||||
Additional paid-in-capital |
131,475 | 131,357 | ||||||||||
Accumulated deficit |
(112,406 | ) | (118,163 | ) | ||||||||
Deferred compensation |
(157 | ) | (214 | ) | ||||||||
Notes receivable from officers |
— | (45 | ) | |||||||||
Total shareholders’ equity |
17,670 | 11,645 | ||||||||||
Total liabilities and shareholders’ equity |
$ | 56,258 | $ | 50,687 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements
3
LendingTree, Inc.
Consolidated Statements of Operations
(unaudited)
| For the Three Months Ended March 31, | |||||||||||
| 2003 | 2002 | ||||||||||
| (in thousands, except per share data) | |||||||||||
Revenue: |
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Exchange |
$ | 38,412 | $ | 19,628 | |||||||
Other |
745 | 1,640 | |||||||||
Total revenue |
39,157 | 21,268 | |||||||||
Cost of revenue: |
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Exchange |
6,181 | 3,249 | |||||||||
Other |
385 | 320 | |||||||||
Total cost of revenue |
6,566 | 3,569 | |||||||||
Gross profit: |
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Exchange |
32,231 | 16,379 | |||||||||
Other |
360 | 1,320 | |||||||||
Total gross profit |
32,591 | 17,699 | |||||||||
Operating expenses: |
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Product development |
1,018 | 878 | |||||||||
Marketing and advertising |
18,071 | 10,681 | |||||||||
Sales, general and administrative |
7,802 | 6,859 | |||||||||
Total operating expenses |
26,891 | 18,418 | |||||||||
Income (loss) from operations |
5,700 | (719 | ) | ||||||||
Interest income |
123 | 122 | |||||||||
Interest expense, financing and other charges |
(66 | ) | (115 | ) | |||||||
Income (loss) from operations before income taxes |
5,757 | (712 | ) | ||||||||
Provision (benefit) for income taxes |
— | — | |||||||||
Net income (loss) from operations |
5,757 | (712 | ) | ||||||||
Accretion of mandatorily redeemable preferred stock |
(170 | ) | (169 | ) | |||||||
Dividends on preferred stock |
(455 | ) | (1,960 | ) | |||||||
Net income (loss) available to common shareholders |
$ | 5,132 | $ | (2,841 | ) | ||||||
Net income (loss) per common share — basic |
$ | 0.23 | $ | (0.15 | ) | ||||||
Net income (loss) per common share — diluted |
$ | 0.18 | $ | (0.15 | ) | ||||||
Weighted average shares used in basic net
income (loss) per common share calculation |
22,662 | 19,372 | |||||||||
Weighted average shares used in diluted net
income (loss) per common share calculation |
32,292 | 19,372 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements
4
LendingTree, Inc.
Consolidated Statements of Cash Flows
(unaudited)
| For the Three Months Ended March 31, | ||||||||||||
| 2003 | 2002 | |||||||||||
| ($ in thousands) | ||||||||||||
Cash flows used in operating activities: |
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Net income (loss) |
$ | 5,757 | $ | (712 | ) | |||||||
Adjustments to reconcile net income (loss) to net cash
used in operating activities: |
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Depreciation and amortization |
1,187 | 1,915 | ||||||||||
Provision for doubtful accounts |
80 | 30 | ||||||||||
Non-cash equity based compensation charges |
66 | 237 | ||||||||||
Changes in assets and liabilities: |
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Advertising escrow |
(1,832 | ) | (3,671 | ) | ||||||||
Accounts receivable |
(5,186 | ) | (649 | ) | ||||||||
Prepaid expenses and other assets |
(634 | ) | (246 | ) | ||||||||
Accounts payable |
181 | (526 | ) | |||||||||
Deferred revenue |
130 | (716 | ) | |||||||||
Accrued expenses and other liabilities |
(1,187 | ) | 419 | |||||||||
Net cash used in operating activities |
(1,438 | ) | (3,919 | ) | ||||||||
Cash flows used in investing activities: |
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Deposits to restricted cash |
(6 | ) | (100 | ) | ||||||||
Release of restricted cash |
85 | 298 | ||||||||||
Investments in software |
(301 | ) | (427 | ) | ||||||||
Purchases of equipment, furniture, leasehold improvements |
(556 | ) | (204 | ) | ||||||||
Net cash used in investing activities |
(778 | ) | (433 | ) | ||||||||
Cash flows provided by financing activities: |
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Proceeds from sales of common stock and exercise of
warrants and stock options |
726 | 742 | ||||||||||
Sale of treasury stock for employee stock purchase plan |
65 | — | ||||||||||
Payment of capital lease obligations |
(228 | ) | (230 | ) | ||||||||
Payment of dividends — Series A convertible preferred stock |
(455 | ) | — | |||||||||
Net short-term borrowings |
— | 4,742 | ||||||||||
Proceeds from repayment of officer note |
45 | 23 | ||||||||||
Net cash provided by financing activities |
153 | 5,277 | ||||||||||
Net increase (decrease) in cash and cash equivalents |
(2,063 | ) | 925 | |||||||||
Cash and cash equivalents, beginning of period |
22,708 | 3,400 | ||||||||||
Cash and cash equivalents, end of period |
$ | 20,645 | $ | 4,325 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements
5
LendingTree, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
(in thousands, except share data)
(unaudited)
| Common Stock | Notes | ||||||||||||||||||||||||||||||||
| Additional | Accum- | Deferred | Receivable | Total Share- | |||||||||||||||||||||||||||||
| Number of | Treasury | Paid-In | ulated | Comp- | to Acquire | holders' | |||||||||||||||||||||||||||
| Shares | Amount | Stock | Capital | Deficit | ensation | Stock | Equity | ||||||||||||||||||||||||||
Balance at December 31, 2002 |
22,823,920 | $ | 228 | $ | (1,518 | ) | $ | 131,357 | $ | (118,163 | ) | $ | (214 | ) | $ | (45 | ) | $ | 11,645 | ||||||||||||||
Amortization of deferred compensation |
57 | 57 | |||||||||||||||||||||||||||||||
Payment of dividends on Series A convertible preferred stock |
(455 | ) | (455 | ) | |||||||||||||||||||||||||||||
Accretion of Series A convertible preferred stock |
(170 | ) | (170 | ) | |||||||||||||||||||||||||||||
Repayment of an officer note |
45 | 45 | |||||||||||||||||||||||||||||||
Exercise of common stock warrants |
2,666 | ||||||||||||||||||||||||||||||||
Reissuance of treasury shares for employee stock purchase
plan participants |
46 | 19 | 65 | ||||||||||||||||||||||||||||||
Exercise of common stock options |
191,451 | 2 | 724 | 726 | |||||||||||||||||||||||||||||
Other comprehensive income: |
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Net Income |
5,757 | ||||||||||||||||||||||||||||||||
Total comprehensive income |
5,757 | ||||||||||||||||||||||||||||||||
Balance at March 31, 2003 |
23,018,037 | $ | 230 | $ | (1,472 | ) | $ | 131,475 | $ | (112,406 | ) | $ | (157 | ) | $ | — | $ | 17,670 | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
6
LendingTree, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 — The Company
LendingTree, Inc. was incorporated in the state of Delaware on June 7, 1996 and commenced nationwide operations on July 1, 1998.
We are an online exchange empowering consumers, Lenders, REALTORS® and related service providers with convenience, choice and value. Through our exchange, which can be accessed online at www.lendingtree.com or by calling us directly at 1-800-555-TREE, consumers can access a nationwide network of over 200 banks, lenders and loan brokers (collectively, “Lenders”) and approximately 650 real estate brokerages representing more than 9,000 agents to obtain loan offers or the services of a real estate agent. We attract consumers to our exchange through various forms of advertising and through arrangements with both online and offline partners.
Consumers seeking loan products begin the LendingTree process by completing a simple online credit request (which we refer to as a “qualification form”). Consumers can also call us directly at 1-800-555-TREE and we will complete the qualification form based on their instructions and answers to questions. After the qualification form is complete, our Lend-X technology automatically retrieves the credit score for the particular consumer. The consumers’ data and credit scores are then automatically compared to the underwriting criteria of the Lenders participating on our exchange. Qualified consumers can receive multiple loan offers in response to a single credit request and then compare, review, and accept the offer that best suits their needs.
Lenders on our exchange can generate new business that meets their specific underwriting criteria at a lower cost of acquisition than traditional marketing channels. Our lending exchange encompasses most consumer credit categories, including mortgages, home equity loans, automobile loans, credit cards, and personal loans. We earn revenue from the Lenders on our exchange that pay us fees for qualification forms that meet their underwriting criteria and are transmitted to them (“transmission fees”). Since a qualification form can be transmitted to more than one Lender, we may generate multiple transmission fees for the same form. We also earn revenue for loans that the Lenders on our exchange close with consumers that we transmitted to them (“closed-loan fees”).
Consumers interested in working with a real estate agent to buy or sell a home can access an online form through our exchange at www.lendingtree.com or through one of the websites of participating membership programs, such as Costco, Delta